sasha96
lovin' my 2 little ladies!
Member since 5/05 7401 total posts
Name:
Julianne
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Re: Consolidating Student Loans??
I think I found the Newsday story online:
Newsday.com
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An interest in savings
Borrowers look to consolidate student loans before rates take a hike
Dowling College
BY TAMI LUHBY
STAFF WRITER
May 31, 2005
Before she and her husband start a family, Laurel Klein wants to be done paying off her student loans. To help speed the process, the Seaford resident is looking into consolidating her loans so she can lock in the historically low interest rate that will disappear July 1.
"I'm interested in taking advantage of rates now," said Klein, assistant communications director for the Nassau comptroller, who consolidated part of her $16,000 education debt two years ago. "I don't want to risk the rates going up and putting me on the hook for several thousand dollars more in interest rates."
Time is running out for borrowers to secure super-low interest rates on their student loans. The new annual rates are predicted to jump by about 2 percentage points and should be announced after today's 91-day Treasury bill auction, upon which the rates are based. You then have until July 1, when the rate takes effect, to consolidate the loans.
By taking this step, borrowers can lock in rates as low as 3.375 percent for those already repaying their loans, or 2.875 percent for those in college or in the six-month grace period after they graduate.
While it may not seem like much, the difference between today's rates and the expected 5.25 percent rate can really add up over time, experts said."It's thousands of dollars of interest they don't have to pay," said Patricia Scherschel, vice president for loan consolidation for Sallie Mae, a loan provider. "It's significant."
Reaping the savings
For instance, those with the average undergraduate debt of $20,500 would save more than $2,000 by consolidating now rather than waiting for rates to go up, according to College Loan Corp., a loan provider. This is provided they pay it off over 10 years.
Recent graduates - and now students, thanks to a recently published Department of Education guidelines - can get the 2.875 percent consolidation rate. A downside is that graduates would have to start repaying their loans immediately and students would have to begin writing checks upon graduation rather than having the traditional six-month grace period, said Mark Brenner, College Loan Corp.'s president, who has seen consolidation applications spike by 20 percent in recent weeks.
An extra incentive to act now is that Congress is considering major changes to the student loan program in order to funnel more money into financial aid for current students. Future consolidation loans instead of locking in a favorable rate would have variable rates, which could go up every year, under some proposals.
Traditionally, consolidation was a way for those who couldn't afford their monthly payments to ease the burden by stretching out the term of the loan to make each payment smaller. But in recent years, as rates plummeted from 8.19 percent in 2000 to 3.37 percent in 2004, borrowers consolidated to guarantee low rates for the life of their loans.
Here's how consolidation works:
Normally, student loan rates fluctuate every year. By consolidating, you lock in the rate for the life of the loan. The rate is based on the weighted average of a borrower's loans, rounded up to the nearest one-eighth of a percentage point. Then you cannot consolidate again unless you take out new loans.
Consolidation requirements vary by lender, but many say they must receive the application by June 30. Lenders often only need your name, Social Security number, approximate loan amount and last school attended.
Comparing rates
While borrowers benefit from the same rates everywhere, they might consider shopping around for additional perks. For instance, some lenders offer discounts for on-time payments or for direct withdrawals from bank accounts. Others may offer cash-back bonuses for timely payments.
Consolidation, however, is not for everyone. It's often not worth it if you have a balance of less than $7,500 or if you only have a year or two of payments left, lenders say.
If you do consolidate, you should try to make the same monthly payments or pay off the loan in the same amount of time as the original term. Consolidation lowers your monthly obligation, but stretches out the term of your loan so you pay more interest in the end.
Or, you could use the extra cash you have each month to pay off costlier debt, such as credit card balances.
"They will, if they pay it over time, pay more interest," said Clark McGhee, executive vice president, Collegiate Funding Services, a student loan provider. "But they may be able to pay off other higher-interest rate debt first."
As rates go up . . .Interest rates on student loans are expected to soar for 2005-06 after
several years of super-low rates.
. . . so will your debt
You'll pay a lot more in interest. Here's how much you'll shell out on a $20,500 loan, the average debt for those receiving their undergraduate degree, over 10 years once the new rates take effect on July 1.
2000-2001
8.19%
2001-2002
5.99%
2002-2003
4.06%
2003-2004
3.42%
2004-2005
3.37%
2005-2006
5.16% (estimated)
SOURCE: SALLIE MAE
Monthly Interest
payment paid Total
Unconsolidated loan* $219 $5,785 $26,285
Consolidated before July 1: $202 $3,682 $24,182
*Assumes 5.16% rate for 10 years
SOURCE: COLLEGE LOAN CORP.
Copyright 2005 Newsday Inc.
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